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**Industrial CRE: Rebalance in 2025, Nuanced Outlook for 2026**
After several years of strong momentum, the industrial real estate sector hit pause in 2025. Industry experts pointed to oversupply absorption, softening demand, and prolonged decision-making by tenants as key contributors to a slowdown that was more of a recalibration than a downturn. Differentiators such as asset quality, location, and size played a pivotal role in shaping sector performance.
Elizabeth Holder, Senior Analyst of Industrial Research at JLL, noted that while the first half of 2025 experienced sluggish demand due to economic uncertainty and shifting tariff policies, the second half saw renewed activity as users were compelled to act on space needs.
“Generally speaking, relative to a historical perspective, the industrial market in the United States is still on solid footing,” said Jeff Thornton, Executive Vice President of CenterPoint Properties. “We are adjusting back to a more traditional environment after a frenzied post-pandemic cycle.”
**From Frenzy to Fundamentals**
Experts across the board agreed that 2025 marked a return to more normalized levels of development and leasing. Ryan Butler, Regional Manager at Northmarq, described the year as a reversion to pre-pandemic behavior, while Jordan Nathan, Head of Corporate Investments at Faropoint, stated that a normalization of goods consumption and right-sizing of inventories contributed to softened demand.
Certain industrial subsectors bucked the overall trend. Luke Huberman, Vice President and Director of Acquisitions at BLT Enterprises, observed that specialized industrial and flex properties performed well, supported by limited development pipelines, diversified demand, and layouts conducive to light manufacturing and last-mile distribution.
Smaller facilities faced better fundamentals. Mason Waite, Senior Managing Director of Asset Management at BKM, explained that constrained supply in this segment allowed landlords to maintain lease rates and favorable terms. In contrast, large speculative big-box spaces ran into headwinds due to overbuilding and vacancy increases.
Steve Reents, Managing Partner and U.S. Chief Investment Officer at BGO, pointed out a clear flight-to-quality dynamic. Newer Class A facilities outperformed older assets, particularly those built before 2020 and outfitted with features like higher clear heights, ample parking, cross-docking capabilities, and robust power availability.
Geography also mattered. Inland logistics hubs outpaced port-heavy regions in fundamentals and rent growth, according to Reents. Michael Mullahey, Vice President of Acquisitions at MCA Realty, added that business parks—less reliant on logistics—weathered tariff and macro uncertainties better than other segments.
“The past year was largely a return to normal levels rather than a true downturn,” Butler explained. Nathan emphasized that “performance was primarily driven by supply imbalance and suite-size mismatch, not overall sector health.”
**Looking Ahead: 2026 Predictions and Considerations**
Based on 2025’s recalibration, experts gave insight into what lies ahead for the industrial sector in 2026.
*Supply Outlook*
The supply pipeline has tightened significantly. Huberman predicted continued focus on core markets and pre-leased projects, where equilibrium will likely come sooner. In contrast, secondary markets may see delayed recovery as both capital and tenants remain cautious.
Elizabeth Holder suggested that interest rate cuts could refresh development activity, with land acquisition and building becoming increasingly attractive as yields improve in comparison to borrowing costs. Still, Butler remarked that supply dynamics will remain uneven. Overbuilt areas will need to absorb excess inventory, while high-demand, low-vacancy markets may see renewed construction.
*Risks on the Horizon*
Several key risks could affect the sector’s 2026 performance:
– **Macroeconomic Challenges**: An economic slowdown or recession may lead to conservative space decisions by tenants and reduced consumer spending.
– **Interest Rate Uncertainty**: Impacts on valuations and slowed transaction activity may persist if rates remain volatile, noted Huberman and Nathan.
– **Trade Policy Volatility**: Holder noted that while the trade environment currently appears stable, geopolitical tensions could impact global supply chains.
Thornton summarized broader concerns, citing oversupply in non-major markets and the unpredictable nature of U.S. and global macroeconomic policies as potential headwinds.
**Forecasts for 2026**
Expert predictions for industrial real estate in 2026 ranged from cautiously optimistic to encouraging. Reents expressed a favorable outlook driven by stable long-term fundamentals. Mullahey echoed similar sentiments, buoyed by trends in manufacturing and artificial intelligence-led leasing. Holder also looked ahead to continued positive momentum anchored by a “manufacturing renaissance” and deeper supply chain diversification.
However, Waite cautioned that performance will be more nuanced. “The market is simply more segmented than in prior years, and success will depend heavily on submarket and suite-size dynamics.” Huberman emphasized that well-located, functional assets would continue to perform well, as quality and functionality become more critical differentiators.
Nathan reinforced the point, expecting fundamentals to remain stable but segmented along asset quality and submarket performance rather than experiencing a sector-wide surge.
Thornton warned that macro uncertainty, including labor market fluctuations and tariffs, may continue to cloud near-term demand. “The uncertainty around macro factors is not good for our business. We think the near term will continue to be a little bumpy,” he added.
Butler concluded by noting that the industrial sector remains a favored asset class with solid fundamentals and long-term demand drivers. Despite this, he anticipated continued volatility and shifting capital market conditions as the sector finds stability in a post-boom cycle.
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